Please share this Christmas gift with your e-mail list. Happy Holidays!

On the third day of Christmas, Mesmerizzzed! gives to you - three pricing strategies, two engineered products and a focused target market.

How much should you charge for your products and services?

Well ... it depends!

If you are Wal-Mart, and you can squeeze every last penny of profit out of your suppliers, you can be the "everyday low price" leader. If your name isn't Walton, then that pricing strategy probably isn't the best strategy for you and your business.

Let's start with pricing strategy number one - survival-based pricing. What's your price when you are in survival mode? It's whatever price you can get for your widget or your time.

How do we get stuck in survival-based pricing? First, we don't really understand our own costs. Second, we look at our competition and "assume" they know what they are doing, so we set our prices just a little bit below their prices.

After a few months of this, we realize we're not making any money. We scratch our head wondering how our competition makes money at that price, so we try to raise our prices to finally make money, or lower our prices to get more sales. The irony is your competition probably isn't making a profit either, so all you have done is confuse the market by reinforcing that the price was right.

Survival-based pricing isn't where you want to be - so get out of that space now!

The second pricing strategy is revenue maximization pricing. In this case, you do know your costs. You do know more about your competition. You are clear on your objective - gain market share. So, you consciously (rather than unconsciously in survival-based pricing) set your prices to beat the competition.

You may be losing a nickel on every sale, but you are confident you can make it up in volume!

There is a time and a place for revenue maximization pricing, but it is a short-run strategy at best. There is a high price to pay in the long-run for maximization - as you can see when you drive by furniture and clothing stores with "going out of business sale" or restaurants with "under new management" signs!

Revenue maximization pricing sounds pretty good, but you are probably buying fools gold for your business.

The third pricing strategy is value-based pricing. You know your costs. You know your competition. You know your market. Most importantly, you understand the value of your products and services and can translate that value into benefits desired by your focused target market.

One of our favorite clients runs an upscale services business. The competition for this service runs from $40 per service to as much as $200 per service. What's our price point? $125. Why?

We know our costs - cold! We know our competition, on both ends of the spectrum. We also know exactly who lives in our target market - and we're not interested in $40 clientele and we don't need $200 clientele. We will attract the $125 clients who come back over and over and over. How? By translating the value of the services provided into the benefits desired by our target market.

What's the impact of value-based pricing? Profit optimization - where we achieve the highest level of profitability from both a percentage of revenue and a total dollars perspective.

When will you start optimizing your profits?

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